London court orders #Ukraine’s wealthiest man to settle his debts

Rinat Akhmetov, Ukraine’s wealthiest oligarch, has been ordered to pay $760.6 million by the London Court of International Arbitration (LCIA), which found that he had failed to pay the majority of the instalments he owed for his purchase of the state telecommunications company Ukrtelecom in 2013.

According to documents seen by EUReporter, in separate rulings in June and September of this year, the arbitral tribunal ordered Akhmetov’s company, SCM Financial Overseas Limited (SCM FO) – a Cyprus-based offshoot of the oligarch’s massive industrial conglomerate, SCM – to immediately pay his debt to the claimant, Raga Establishment Limited. Thus far, however, SCM FO has shown no desire to settle its debt. In response, Raga has been forced to bring insolvency proceedings against SCO FO in Cyprus.

Details on the case that have been shared with us reveal the full extent of the skulduggery carried out by Akhmetov, who is worth an estimated $4.58 billion and through SCM controls massive stakes in the Ukrainian metals, mining, and energy industries, including a 71% share in the country’s largest steel manufacturer.

The dispute arose in June 2013, when SCM agreed to purchase 100% of the shares in Ukrtelecom from Raga (then named Epic) for approximately $886.2 million. According to the terms of the sale and purchase agreement, the purchase price was to be paid in three instalments. SCM paid the first instalment of $100 million on the due date, but it failed to pay the second and third instalments, which totalled approximately $760.6 million following a mutual agreement between the parties to slightly lower the purchase price.

In response, on 20 June 2016, Raga began LCIA arbitration proceedings against SCM FO, seeking recovery of the outstanding payments. During the course of the proceedings, however, Raga discovered that since its purchase of Ukrtelecom, SCM FO had been siphoning off its assets to other entities in the SCM Group. In November 2014, SCM FO transferred a 44.3134% stake in its largest and most valuable subsidiary, SCM Ltd., to SCM Holdings Ltd. for nominal consideration, at a loss of $937 million. That same month, it moved a 7.66% stake in First Ukrainian National Bank to another SCM Group entity, once again at a loss of an estimated $9 million. And in December 2014, it channelled $150 million into a newly-created subsidiary, Pluscom Holdings Ltd., which then immediately used those funds to extend a $149.8 million loan to SCM Holdings Ltd. SCO FO then sold Pluscom itself to another SCM Group entity, PH Premium Household Ltd., for $200,000 in May 2016.

The cumulative effect of this series of intra-group transfers was to essentially strip SCM FO of its assets and thereby prevent Raga from being able to collect the outstanding payments of $760.6 million in return for its sale of Ukrtelecom. In response, Raga obtained a freezing order against SCM Financial from the English High Court in June 2016 and against SCM Holdings before the District Court of Nicosia in Cyprus.

This October, shortly after the LCIA issued its final ruling against SCO FO, there came another twist in the tale: the Economic Court in Kiev ruled that Ukrtelecom be returned to state ownership because its buyer, the SCM-owned ESU, had failed to meet privatization commitments at the time of the purchase in 2011. ESU, which is 93% controlled by Akkhmetov’s holding company, has been ordered to return ownership rights to the state and pay a fine of $82 million for improper performance of the contract. According to documents seen by EUReporter, however, the timing of the ruling is no coincidence: its true purpose is to ensure that Raga does not get control of the asset it is due.

Despite Raga’s victory in the arbitral tribunal, Akhmetov continues to enjoy the full fruits of ownership of Ukrtelecom while only having paid a fraction of the price.

As Raga put it before the tribunal earlier this year: “This has always been, and remains, a simple debt claim – albeit one in which the Respondent debtor is trying every trick in the book to avoid paying its debt to the Claimant creditor.” This latest development appears to confirm their suspicions that this is precisely what SCO FO intends to do.

 

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Category: A Frontpage, Business Information, Economy, UK, Ukraine